Mean‐Variance Spanning

ABSTRACT

The authors propose a likelihood‐ratio test of the hypothesis that the minimum‐variance frontier of a set of K assets coincides with the frontier of this set and another set of N assets. They study the relation between this hypothesis, exact arbitrage pricing, and mutual fund separation. The exact distribution
of the test statistic is available. The authors test the hypothesis that the frontier spanned by three size‐sorted stock portfolios
is the same as the frontier spanned by thirty‐three size‐sorted stock portfolios.